It’s not all bad news

April 7th, 2008

Good news for a Monday. The International Monetary Fund, that bastion of global capitalism, has announce that it believes that house prices in the UK are overvalued by approximately thirty percent. It also predicts that in the current global financial climate that could be set to correct itself in what would be termed a house price crash.

The first portents of a collapse may already be here: approvals for new mortgages, an indicator of the strength of the market looking forward, are down 40 per cent on a year ago, and leading lender Nationwide has registered falling prices for five months in a row.

‘There is no doubt this is a very difficult situation,’ said one bank executive. ‘Some borrowers will really feel the pinch, and repossessions will rise, though they are low at the moment. We are already seeing house prices begin to fall across the country.’

Homebuyers who were once swamped with offers of credit are now desperately scrabbling around in the hope of grabbing an affordable deal and anyone not classed as an ultra-safe prospect will face a real struggle.

The mortgage panic was sparked last week by First Direct, owned by the international banking giant HSBC, when it temporarily withdrew its entire range after being deluged by five times the normal level of applications. It said it would continue to offer home loans to existing customers only.

Rival lenders are also scrapping deals, or increasing the cost of their loans. The Co-op, whose rates temporarily became the most attractive on the market last week, withdrew its cheap mortgages following the First Direct announcement. A number of smaller lenders, such as the Bath and the Earl Shilton building societies, had previously withdrawn many of their deals. Others, including the Melton Mowbray, Tipton & Coseley and Newbury building societies, have said they will now lend only to local people. The newly nationalised Northern Rock, which had been gobbling up new business before its collapse, is now actively seeking to shed borrowers.

For would-be first-time buyers, the situation is grim. Even before the mortgage famine struck, the high cost of property had slashed the number of novice homeowners from 970,000 in 1988 to 300,000 last year, and sent the average age of a first-time purchaser up from the mid-twenties to 34. Without a substantial deposit – £34,000 was the average last year before the market seized up – aspiring first-timers have been frozen out.

There is an upside to this, however. Those people ‘stuck’ in rented property may find that for the next few years they are much better off than their friends who have stretched themselves beyond their limits in a rush to get on the property ladder. Similarly, a house price ‘correction’ would ease the pressure on those same first time buyers who have been under such pressure recently.

This entry was posted on Monday, April 7th, 2008 at 2:04 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

It’s not all bad news

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